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March Madness
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
March 17th 2000

By Brent Holliday

"I said, "Baby what's the going price",
She told me to go to hell...

Ain't it a shame, To be shot down in flames." - AC/DC, Shot Down In Flames

Every year about this time, North Americans (usually male) get excited about college basketball teams that they have never heard of.  The office and online pools are a massive guessing game because there are always upsets in the 64 team, single knockout tournament.  This means that the person that follows college hoops the closest never wins the pool.  Why?  Because they won't pick the underdogs.  They go by the numbers, analyze the styles of play and make well-educated prognostications.  My pool was won a few years back by a woman who picked the winners by what colours their shirts were.  If she liked the colour, she chose the team. She really liked navy blue with gold trim and that was the year ('89 I think) that Michigan won it.  I kid you not.

This is not a convenient segue to discuss chaos theory and how it applies to college basketball tournaments.  And I'm not going to tell you who I picked this year (OK, Michigan State over Duke in the final).  I am going to tell you about a particular March Madness, this year's technology investment climate and it has a sports theme.

Ever heard of Bre-X?  A little fallout from this debacle is pending legislation that makes an investment outfit liable for any public comments it makes regarding a company.  Analyst, investment banker, secretary, doesn't matter.  If it is made public, it will put the firm on the hook.  This is not the law of the land yet, but it should be, given the page and a half of utter drivel that was in the weekend Vancouver Sun two weeks ago about a public company called Book4golf.com 

The company had a market cap at the time of CDN$500 M based on the $15 per share price.  The company has an interesting business plan to allow anyone to book tee times on any course in North America through one site.  As I understand it, they will make money in the transaction of the booking and from advertising and cross promotion on the site with golf related companies.  The site has a large database of golf sites with scorecards and maps of a lot of them.  Public golf is big business.  Booking tee times is a pain for consumers and a single interface makes sense for them.  But how many courses have Internet access at the pro shop desk?  More in the future, I bet.  But not many now.  Wireless delivery of bookings probably makes more sense, but I digress.  

So, the article has Yorkton president Scotty Paterson declaring that this company will be huge. They will dominate the market and have already signed up many major golf clubs to use their system.  Then he blurts out that the shares will go to $300!  Talk about your potential liability!  This company will be worth 20x what it is today, he says. If Scotty's comment was meant to be a massive tee shot down the middle of the fairway, I see it as more of a duck hook into the woods, out of bounds. 

Here's what the very last paragraph mentioned in the 2000+ word promotional article:  The site won't book tee times until at least April, possibly not for 8 more months according to sources in the article.  Seems they haven't built the tee time engine yet.  Oops.  Big oops.  

Now Yorkton is a great Canadian story in investment banking.  They have carved a good niche in technology and have been involved in many of the successful Canadian technology stories that you have heard of.   But this is truly madness.  Book4golf.com needs 8 more months to finish their product?  That's an eternity in the E-Commerce world of today.  I'm willing to bet that there is a team out there that could build what they need in less than 8 months.  I'm also willing to bet that someone already has built what they need.  Who, you ask?  How about Eteetime.com, which has over 110,000 tee times available every day.  Now.  It works.  Perhaps Book4golf.com should look up any of the 18 other on-line tee time companies on Yahoo (http://dir.yahoo.com/Business_and_
) and see if they have some technology that they could license?

Why haven't you heard of Eteetime.com?  Because they are privately held, VC backed and building business alliances as fast or faster than Book4golf.com, without a president of an investment bank saying that they will be worth $10 Billion soon. Is Eteetime.com worth $500M just because Canadian investors think Book4golf.com is worth that much in a public market?  If I was the CEO of Eteetime.com, I would be arguing that I am worth more.  Did the recent backers of Eteetime.com invest money in them at such a high valuation?  I think not. Probably at less than 1/10th of that value.  So is Eteetime.com stupid for not getting such an enormous value through the public market or is Book4golf.com ridiculously over-valued?  Probably a toss up in the short term.  Let's ask the question again in 6 months..

Here's the kicker.. some people just invested in Book4golf.com at $15 a share ($500M valuation).  They raised $20M in a private placement, brokered by (let's see if you can guess who..) Yorkton.  The stock is at $12.70 today on the CDNX.  If Eteetime.com was doing a round of financing and you had the choice to invest, would you pay $15 a share or possibly 10 x less for a company that seems to be ahead of the more expensive one.  Am I being clear enough here?  

Let's look at the positives for Book4golf.com.  They raised money at a high valuation, so the founders and earlier shareholders own more of the company.  Great.  Bully for them.  They have promotion out the ying-yang and so awareness is growing in the golfing community (as well as the CDNX investing community).  Many people will be driven to their site.  Now here's the bad news.  The people that go to book a tee time at their site can't.  Maybe not for another 8 months.  A competitor has market traction with similar alliances and a working site.  They have almost as much money in the bank (of course, the founders hold relatively less of the company).  If Book4golf.com's stock price dives in the next little while, the recent buyers of $15 shares will not invest again when the company needs more money.  They will be very unhappy.  Caveat emptor.  

Here's the danger of placing a $500M valuation on a very early stage company in a market where there is no inherent protectible advantage:  At that level of value, they should be raising $100M to really market this thing, but that's only possible when you are pre-IPO and the private institutional investors can see the lift of that IPO around the corner.  Look at the last 24 months of private, pre-IPO investing in e-commerce companies and you will see that trend very clearly.  Want a comparable? Onvia.com raised its pre-IPO round of US $48M at a valuation of roughly US$250M, about $75M less than Book4golf.com. 

I promise not to get on my soapbox and praise the virtues of staying private to raise your money and grow your company, at least until the stage that users can actually transact business with you. Oops, too late.  But I had to vent this story for a variety of other reasons:  

1. This is symptomatic of "inmates running the asylum" scenarios at the top end of a bull market.

2.  The dangerous and wild predictions of the investment bank here are only going to hurt innocent individual investors, much like the truckloads of gold story of two short years ago.

3.  Private companies and their investors set the price for investment based on mutual negotiation.  Its in both parties interest to keep in mind the next source of money so as not to achieve a too lofty value and have no one else invest, orphaning the company.

4.  Once you sell product, huge overvaluation in a public company is de rigeur these days.  I have no problem with that.  Itís the company that has no product and needs strategic investment partners that gets hurt when it is prematurely hyped.

Finally, I just want to protect myself from eating my shoe at some future date with this closing:  I think that Book4golf.com is doing all of the right things, businesswise, in creating their brand, alliances with key suppliers and partners and in signing up golf courses.  If it was a company in my portfolio, I would be happy with their progress to date on those fronts.  But competition is heating up and they have to get the technology working ASAP.  I guess I just have a problem with an unfinished product getting overhyped in a public market that currently lacks reality-based investors.   

Do you buy stocks based on the colour of the company's shirts?  Even if you don't analyze it, you might still win.  Don't need to listen to the "expert", do you.  It's March, after all.

Letters From Last Week

How you dare call a decent hard working man like Ramsey a jackass!!!

It's true he would drive a peanut stand bankrupt in first hour of operation but he is a decent man!!

I was wondering if you get a lot of flame? I think would be interesting to post the most representative you get for each column under "best flame from last article" or something like that, providing un-altered text and email of originator (I'm not original, some sites do that, it's really entertaining)  

That would be fun huh??




I have received a few "disagreements" in my time, but only one true flame.  Because I printed the flame, and the guy looked like a bit of a fool, he got very angry with me and asked that it be removed.  I am expecting a few letters this week, as I delve into a particular company and its situation.  Stay tuned next time for some action, I hope.

I actually expected a few more responses about the taxes/budget column last time.  I guess everyone was pretty much in agreement.

I apologize to a couple of writers that sent responses that I did not print this week.  I'm on the road and I managed to leave them at home.  One was a well-organized rant about the tax situation.  I'll try and print them next time.

What Do You Think? Talk Back To Brent Holliday

Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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